Welcome back. In this mini-lecture, we're going to talk about how to calculate the price elasticity of demand. So we have a price of 10, and a quantity demanded of 100, and another price of eight and a quantity demanded of 150. Now, that makes lots of sense. It's in accord with the law of demand that is price and quantity demanded are inversely related. So all is well. It's now asking us to calculate the price elasticity of demand between these two prices that you see in the table. Now, here's the formula. It looks a little bit scary, but it's actually pretty easy, it boils down to this. The elasticity of demand is simply the percent change in the quantity demanded divided by the percent change in the price. Anybody can calculate the percent change in anything. The only little wrinkle that we have is that in Economics, to get precision, we use what's called the midpoint formula. I'll explain what that is in a moment, and I'm also going to show you a shortcut. All right? So on the top, we got Q_2 minus Q_1. So that's 150 minus 100, that gets you the 50. Q_2 plus Q_1, you're adding the two together, 100 and 150 give you 250 divided by 2. That's what I mean by midpoint, it's the midpoint between those two points, so you don't create any bias in the calculation. So 50 over 250 over 2. Now, here's a little secret. Notice in the bottom, you also have a division by two. Well, what if you take a fraction and both of those fractions have the same denominator? When you invert, multiply, they cancel. To tell you the truth, you could get rid of these two and it will make this formula a lot easier. I'm only showing you so that you can see full throttle with the formula formally looks like, all right? Anyhow. So 50 over 250 over 2 is the same thing as 50 over 125. Negative 2 over 18 over 2, how did you get that? Well, negative 2 is P_2 minus P_1. P_2 is 8, P_1 is 10. So 8 minus 10 is negative two dollars, add the two together, eight dollars and $10 get you 18 divide by 2, that's how you get that. Negative 2 over 18 over 2 is negative 2 over 9, 18 over 2, remember is negative 9. Now, take a quick look here, negative, negative, dollar sign, dollar sign. The negatives cancel, they become positive. The dollar signs cancel, there's no dollar signs in your answer right now, let's come on over to here. Fifty over 125 is the same thing as 2 over 5, negative 2 over negative 9 is just 2 over 9. The dollar sign cancel, remember. Whenever [NOISE] you take a fraction and you divide by another fraction, it's the same thing as inverting and multiplying. So that's what we got, 2 over 5 times 9 over 2. Remember, the dollar sign's cancel, and you are simply left with as you can see the twos are going to cancel, 9 over 5, put that in your trusty calculator and you end up with negative 1.8. Now, that's a positive number, so what does that mean? It means that the elasticity of demand between these two price points, and these two price points alone, not any other price points, are elastic. Why? Because it's greater than one. Anyhow, that's how you do it. Looks like a lot of work, really it's pretty simple as long as you just remember percent change in quantity demanded over the percent change in price, and as long as you also remember my little shortcut which is, if you want to ditch these twos, you can do that as well because you're going to get the same answer either way. Okay? Until next time. Take care and best wishes.